In most cases, someone selling a home is eager to reach the closing and move on, literally and figuratively. The last thing the home seller will do is try to scuttle the deal, and will typically negotiate when issues arise. But once in a while, a home seller will get cold feet, receive an irresistibly better offer, experience a huge change in life circumstances, or something else that causes them to back out.
Fortunately, a home buyer has certain remedies available if a seller wrongfully fails or refuses to perform the obligations under a contract for the sale of real property, including:
- money damages for breach of contract
- termination of the contract and return of the deposit, plus payment of reasonable expenses, and/or
- specific performance of the agreement—in other words, completion of the home sale.
We'll discuss all these below, after an analysis of whether the seller is actually in default.
Did the Property Seller Really Default?
Before rushing to look for legal remedies, it's important to carefully read the contract that you signed. Remember that the seller (as well as the buyer) likely has some legal ways out of it, with no penalties or consequences. These are typically found in the form of what are called "contingencies."
If, for instance, you and the home seller agreed to include a contingency in the contract saying that the sale was contingent on the seller finding another house to buy, and the seller has, after good-faith efforts, been unable to do that, the seller is not at fault in canceling the contract. There would thus be no legal breach, and you would have no legal basis upon which to complain or sue.
Claiming Money Damages for Property Seller's Breach of Real Estate Contract
If you have been financially damaged by the seller's breach of the purchase contract, suing for money damages could be an option.
How much can you ask for? That depends on how you were actually affected and the law in your state. If the home seller acted in good faith and you were not otherwise financially affected, the seller might be liable only for return of the earnest money deposit plus interest and reasonable expenses. Reasonable expenses might include the cost of the title examination (part of the process of applying for title insurance), preparation of a property survey, and attorney's fees.
However, if the seller acted in bad faith, your state's law might allow additional money damages. Check with a real estate attorney for details.
Terminating the Real Estate Purchase Contract and Recovering Your Money
In the event of a breach by the seller, or where you and the seller didn't actually sign a contract, or where the contract you thought you entered into is actually invalid or unenforceable, you are likely entitled to terminate the contract and recover any payments you made to the property seller.
Where both the buyer and seller agree to terminate the agreement, the buyer ordinarily is allowed to recover any purchase money paid, even if the contract provides that such payments will be forfeited if the contract is not performed.
Demanding Specific Performance From the Home Seller
If the property seller is able but unwilling to perform (that is, to convey the house to you), it might actually be possible for you to bring a legal action for what's called "specific performance." In plain English, this means you're asking a court to order the seller to sell the home to you as originally planned. More specifically, the court would order the seller to complete the transaction according to the terms of the contract, rather than to compensate you monetarily for the breach.
Specific performance is not a matter of right, but is usually a matter for the court's discretion, and also depends on the law in your state. A court typically orders this only upon finding that the purchase agreement lays out the essential elements of the intended sale in definite and unequivocal terms, the buyer was ready and able to fulfill half of the bargain, and the parties cannot be returned to their former or rightful positions in any other way. If the sales contract allows the seller an unconditional right to cancel, the buyer will probably not be entitled to specific performance.
"Essential elements" of the contract typically would include the purchase price, earnest money deposit amount, down payment amount, legal description of the property, financing terms, closing date, and effective time period of the contract. They might also include an inventory of property on the premises that is to be included with the real property, specific conditions for sale, and so on.
Specific performance is not often granted. Courts are understandably reluctant to force a homeowner to sell, particularly if the seller now plans to remain in the home (as opposed to a situation where, for example, the seller decided to breach the contract in order to accept a better offer).
Questions for Your Attorney
- Did the seller breach the purchase contract in canceling the home sale, or was the cancellation justified by the contract contingencies or other terms?
- Can I get my earnest money payment back after the home sale fell through?
- What does the law in our state provide by way of remedies for a seller's breach of a real estate contract?